EFT Advice

EC1991

Good afternoon,

I'm looking to get the ball rolling from an early age in terms of saving and investing. I'm planning to invest a small principal sum now (~€5,000), and to add to this year on year. I've begun to read some of the literature on the topic and found 'A random walk down Wall St.' an interesting read. I like the idea of EFTs and index funds, as apposed to mutuals and individual stocks. I'm wondering if someone could provide some advice on the following:

1. I'm looking to invest initially in 1 EFT, with a view to adding a second later in the year. Following that, I'm not anticipating making many more trades, perhaps 1-2 small stock purchases/yr. Who would be the most suitable broker for an individual who looks to make only 3-4 execution only trades/yr?

2. When brokers list their transaction fees, do these fees apply when buying? Or are you charged on both the purchase and the sale?

3. I wish to invest in an Irish EFT first, adding something that tracks the S&P 500 later in the year. iShares EIRL has an expense ratio of just 0.48%. Am I correct in saying this isn't listed on the ISE? Is there any other EFT that are listed on the ISE with a low expense ratio? If not, are their other charges & tax's associates with trading on the NYSE?

4. What are the tax implications here in Ireland? I understand any ISE trade is subject to 1% stamp duty, is this at the point of purchase or sale? Do you pay capital gains on both dividends and when selling shares at a profit? If so, what is the capital gains rate?


If someone could shine some light on this it'd be greatly appreciated.

EC

aidanki

there was a v good thread posted by those that understand these things on the whole ETF thing and how it works.

IIRC you have to cash an ETF in after 8years so that you can pay the tax to the Irish Government ?

RobertKK

I'll answer 2 and 4.

2. fees are charged for both buying and selling.
4. stamp duty for Irish stocks is at point of purchase. You put dividends in as part of income so income tax for dividends.
For capital gains you are given an allowance of €1270 and profits above that you currently pay 33%.

EC1991

RobertKK wrote: »

I'll answer 2 and 4.

2. fees are charged for both buying and selling.
4. stamp duty for Irish stocks is at point of purchase. You put dividends in as part of income so income tax for dividends.
For capital gains you are given an allowance of €1270 and profits above that you currently pay 33%.

Thank you very much for this. Is the €1270 threshold per stock or whatever you've gained per year?

Sadly I'm assuming the latter.

Fiskar

1270 is per year. It doubles to 2,540 if your account is in your and your spouses name and you are jointly assessed.

FernandoTorres

Are ETFs not assessed the same as unit linked funds in Ireland? i.e no €1270 tax free, no ability to use losses against gains and a hefty 45% tax rate.

Fiskar

FernandoTorres wrote: »

Are ETFs not assessed the same as unit linked funds in Ireland? i.e no €1270 tax free, no ability to use losses against gains and a hefty 45% tax rate.

It would appear bizzarily that you are correct. Revenue treats ETS like mutual funds and not like shares! Therefore the exit tax rate is 41% and the 33% CGT does not apply. Plus you must declare the gain every 8 years and pay the exit tax on it.
This is so backwards considering the Minister for Finance has himself invested in ETF's.

Frogdog

It doesn't pay to save and fund your own retirement in this country!

EC1991

Fiskar wrote: »

It would appear bizzarily that you are correct. Revenue treats ETS like mutual funds and not like shares! Therefore the exit tax rate is 41% and the 33% CGT does not apply. Plus you must declare the gain every 8 years and pay the exit tax on it.
This is so backwards considering the Minister for Finance has himself invested in ETF's.

This is crazy, anybody know what CGT is in the UK and the US? Hard to imagine it's anywhere as near as high as 33-41%.

Do I have any other alternative to ETFs where I won't be subjected to such high levels of CTG? I really liked the idea of them, it suited my criteria very well. Is my only option to trade individual stocks where I get the €1270/yr tax free and 33% from there on in?

hfallada

EC1991 wrote: »

This is crazy, anybody know what CGT is in the UK and the US? Hard to imagine it's anywhere as near as high as 33-41%.

Do I have any other alternative to ETFs where I won't be subjected to such high levels of CTG? I really liked the idea of them, it suited my criteria very well. Is my only option to trade individual stocks where I get the €1270/yr tax free and 33% from there on in?

Well there is an article in the Sunday Times, basically saying that CGT revenue has collapsed. Obviously no one in the dept of Finance did leaving cert economics, where you are taught that there is a backward bending curve in tax revenue. That is the tax rate is too high, there is no incentive to work or invest. So people dont work or invest, therefore an increase in tax rates doesnt result in an increase in tax revenue. Shares are quite risky. I wouldnt risk investing in a high risk shares with CGT being 33% from 20% a few years ago.

In the US its around 15%.
http://www.forbes.com/sites/ashleaebeling/2013/09/13/how-to-beat-the-big-2013-capital-gains-tax-hike/

The UK has quite a few exceptions on CGT. So its reasonably low

Fiskar

EC1991 wrote: »

This is crazy, anybody know what CGT is in the UK and the US? Hard to imagine it's anywhere as near as high as 33-41%.

Do I have any other alternative to ETFs where I won't be subjected to such high levels of CTG? I really liked the idea of them, it suited my criteria very well. Is my only option to trade individual stocks where I get the €1270/yr tax free and 33% from there on in?

I too am in the same boat, I will invest in an ETF or 2 shortly in the hope that within 8 years these mad rules will be changed. There is a very decent thread on this on askaboutmoney.com .

EC1991

Fiskar wrote: »

I too am in the same boat, I will invest in an ETF or 2 shortly in the hope that within 8 years these mad rules will be changed. There is a very decent thread on this on askaboutmoney.com .

Seems to be a big risk to take, esp with the recent rise of the left it's difficult to fathom how lowering CGT on stuff like this could take center stage.

hfallada wrote: »

Shares are quite risky. I wouldnt risk investing in a high risk shares with CGT being 33% from 20% a few years ago.

I can now see how the Irish property market got so out of hand with all the horse**** that's involved in anything to do with the stock market here. Perhaps I'll avoid the high risk stocks, sticking to 3-4 mid-low risk ones. I don't mind taking a small hit to be totally honest.

Is there any other viable methods of investing in some sort of an index that people know of?

arrowloopboy

:mad::mad::mad:This is exactly why the only form of investing/trading I do now is via spread betting.
What a sh1thole of a little welfare country we live in .

euroboom13

1)Stamp duty may fall in next budget .

2)Tip..
if you have accumulated some profit ,invest some more money in a riskier asset, this way ,if your risk doesn't pay off ,(worst outcome)the lost money can be set against gain ,hence ,the risk was spread 67% capitol 33% tax. If it pays off you can repeat .......

(I hate to think that the state takes 33% of the profit and zero risk ,and this method makes the state share some off the risk){ this is not a tax avoidance scheme}
Hope I explained it comprehensively GLA

RobertKK

Sinn Fein idiots think CGT is too low and want to raise it to 40%.

Thanks for the info on ETFs. didn't know that quite obviously.

FernandoTorres

Yeah sadly it seems I was right. Haven't lived in Ireland for a couple of years so was hoping maybe they'd seen some sense! I'm in Oz where you're taxed at your marginal rate with a 50% discount if you own the asset over 12 months. Works out around 18%. A lot more palatable!

EC1991

Does anyone know how the €1,250 ceiling differs from buying and holding vs selling within the year. If I only invest in one stock for a period of 3 years am I allowed €3,750 tax free profit? Or does that only apply if I sell at a profit during the first year?

RobertKK

EC1991 wrote: »

Does anyone know how the €1,250 ceiling differs from buying and holding vs selling within the year. If I only invest in one stock for a period of 3 years am I allowed €3,750 tax free profit? Or does that only apply if I sell at a profit during the first year?

It is an annual allowance like with income tax, you can't stack it unfortunately.

EC1991

RobertKK wrote: »

It is an annual allowance like with income tax, you can't stack it unfortunately.

So if one wanted to buy and hold a bluechip for 3 years for example, is there anything stopping me from selling at the end of the tax year, claiming the annual allowance, and then straight away reinvest for the next tax year?

I'm sorry to derailing the thread by the way!

daheff

hfallada wrote: »

Well there is an article in the Sunday Times, basically saying that CGT revenue has collapsed. Obviously no one in the dept of Finance did leaving cert economics, where you are taught that there is a backward bending curve in tax revenue.

Maybe they did accounting instead and saw that the financial markets had dropped...so that meant less profits for people...so the higher CGT rate meant they were trying to keep a higher % of a smaller pot to try to keep the overall amount broadly similar?

who knows? Maybe someday somebody from revenue will tell us :rolleyes:

I take your point higher tax rate means less people investing (or in a lot of cases crystallising a profit)....personally I'm happy to let my investments run for a few years until the government reduce taxes. I'm sure I'm not the only one. And when the government reduce the tax you'll see a lot of people closing out positions to take the lower rate. That will look like lower taxes was the direct cause of higher tax take, whereas in fact its really a deferred tax take that people have held out on.

Also where profits are relatively small (eg under the 1270 threshold) people should actively look to close/reopen positions to avail of the annual exemption rather than wait until they finally want to close out a gain.

Blacktie.

daheff wrote:

Also where profits are relatively small (eg under the 1270 threshold) people should actively look to close/reopen positions to avail of the annual exemption rather than wait until they finally want to close out a gain.

If there's a 1270 threshold surely your profits are reset at the beginning of each year and it's not just the accumulation that's counted.

daheff

Blacktie. wrote: »

If there's a 1270 threshold surely your profits are reset at the beginning of each year and it's not just the accumulation that's counted.

no...its only where you crystalise a gain (ie sell out of the position).


However there are situations where you must do a notional exit every 8 years afaik and pay that tax on that notional gain. If you were in a position to open/close a profitable position every year or two then you could potentially reduce the taxable position you are in